Greece: Europe’s Identified Patient

The German government s determined not to negotiate anew the terms for the expiring 712 billion Euro bailout of Greece.

I have three objections to the German line of “reasoning” about Greek debt.

(1) “Charitable” giving that was really out of self-interest

Here’s what Martin Wolf, well-known British economist and writer for the Financial Times had to say about self-interest and loans in June, 2011 in his editorial, “Time for common sense on Greece”.

“What is the case for persisting with lending ever more [to Greece], and in the process, taking a larger proportion of the liabilities of the Greek government on to public sector balance sheets? I can see four arguments:

“It is far less embarrassing to state that one is helping Greece when one is in fact helping one’s own bank. If private lenders have enough time, they can sell their loans to the public sector or write them off without capital infusions from states.

The second argument is that the strategy of delay allows other countries to get their houses in order before a Greek default…”

Wolf’s view, stated at the beginning of this editorial, was “The question about the prospects for Greece is not about whether the country will default. That is, in my view, as near to a certainty as any such thing can be.”…

In other words, countries like Germany were just protecting their own investment banks by buying Greek debt and putting it on their own government balance sheets. They were also protecting against runs on all their banks should the Euro start failing.

Thus, it’s now Greece that is suffering from runs on its banks.

(2) Germany’s own future isn’t so rosy either

Germany has amassed wealth from its exports. But most of Germany’s export income has come from China. China is now having an economic crisis.

Germany is looking at a quite probable reduction in the country’s net export income, and hence a lower GDP (i.e. national income) in the near future.

Given the imminent possibility of sovereign debt failure in Greece, one can understand why the Germans, as creditors of Greek debt, want all their money back sooner rather than later.

(3) European arrogance and moral self-righteousness

Even Martin Wolf’s sympathetic piece on the Greeks in 2011 (cited above) calls the Greeks lazy. Wolf referred to Greece’s “lack of competitiveness” as the reason along with its “massive indebtedness” why default on its debt was a sure bet.

Greece is widely alleged to be somehow more corrupt than any other of the multitude of corrupt governments in our world. That apparently includes our own billionaire-bought Congress, purchased by tycoons, who as Warren Buffet has pointed out, pay little or even no taxes to our US government.

An October 2014 article in the Economist, “The treasures of darkness” dredged up a study by “Transparency International” from the 1990s that says “Greece’s public sector is more corrupt than any other EU state,..”

Greece is alleged to have a ton of rich people who are not paying any taxes. Germany’s finance minister even had the chutzpah to offer to send 500 German taxpayers into Greece to collect from deadbeat Greek oligarchs.

Who are those rich Greeks? The Economist article cited above reports that “Two out of three Greek workers either understate their earnings or fail to disclose them to the taxman altogether,,,,

Aha! So a lot of those “rich Greek” tax evaders are actually Greek “workers”. Not the 25% of Greek workers who are now officially unemployed. No. They’re the “high numbers” of moonlighting self-employed Greeks.

The Economist alleges, “It is relatively easy for those working for themselves to evade income tax and social security contributions” on their extra income,“ two-thirds of which income is spent almost immediately on “businesses that do pay taxes”.

Greece as the Eurozone’s identified patient

This immense “shadow economy” made up of marginal workers is alleged to be the cause of Greek government debt.